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31 March 2015

Doing business in Lagos: meeting the challenges of extreme urbanisation

Lagos – exciting, buzzing, a beacon for start-ups and the arts? Or chaotic, dangerous, with high crime rates and a forever-dropping internet connection? Whatever you think of Nigeria’s biggest city, there’s no denying that millions of people want to live and work there.

The exact population of Lagos is up for debate. In 2006 – the most recent year for which there are official figures – Lagos State was home to 17.5 million people. Nine years later it is said to be around 22.5 million. Other estimates indicate that 5,000 new people a day arrive in Lagos. No matter the precise figures, this is one of the fastest growing cities in the world and the biggest on the continent of Africa.

The state government of Lagos is doing well. Lagos State has a GDP similar in size to the entire country of Tanzania, and is the only state in Nigeria that generates up to 70 per cent of its own income. So given its strong position and rapid growth, who are the businesses and investors that are winning? And who is losing?

Alongside its many established and profitable industries, such as financial services and telecoms, Lagos is undoubtedly a hub for entrepreneurialism, evident in both formal and informal economies, in big business and at street level trading. Many people come to Lagos to start businesses, but a great proportion of them do this because they are un- or under-employed. And up to 80 per cent of these small businesses will fail.

Environmental constraints hinder new businesses from growing,” says Dr Enase Okonedo, Dean of Lagos Business School. “They lack access to finance, and the support isn’t there. The government has a role to play to provide business with supporting and enabling infrastructure, policies, and tax incentives.

Many would-be entrepreneurs also lack the kinds of management skills that Lagos Business School, and a range of online and other courses, seek to develop. Lack of training and general education remains an issue.

Another thriving sector is arts and entertainment. The Lagos-based Nigerian film industry – Nollywood – employs more than a million people, and is the third largest in the world. Other sectors of the creative industries – such as the visual arts, theatre and museums – are also growing in importance. Indeed, many commentators recall the vibrant cultural scene of 1960s and 1970s Lagos which, as Okonedo points out, dwindled away during the recession of the late 1980s. Now, however, much of the cultural sector is undergoing huge resurgence. Nigerian contemporary art, for instance, is becoming prominent in Africa, Europe and the US, as demonstrated by the explosion of Nigerian contemporary art being sold at international auction. The increasingly significant art-collecting scene in Lagos – due at least partly to rising middle class incomes and interest – means that galleries are flourishing. “The arts scene is vibrant, and it is creating many jobs,” says Okonedo.

But while some sectors flourish, there remain serious, if predictable, challenges that Lagos shares with much of Nigeria.

Law and order is a challenge,” says Dr Kamal Munir, Head of the Strategy & International Business subject group at Cambridge Judge Business School. “This, in turn, is related to pervasive inequality across Nigeria,” says Munir. “Research everywhere shows that countries with higher inequality have higher levels of crime and social problems. Nigeria is unsurprisingly experiencing that as well.

Even while oil prices were high, revenues to Nigeria were declining; now the price is falling, the position is worse. “The wealth the country generates from oil is not allocated democratically or fairly, which leads to greater inequality. Even when oil prices were sky high, 60 per cent of the population were earning below a dollar a day,” says Munir. Clearly Nigeria needs to diversify its economic base and at the same time ensure a more equal distribution of wealth.

In this most populous of cities, the property market is creating great opportunity for entrepreneurs and property developers. Gabriel Onagoruwa, who was born in Lagos, is a commercial lawyer who has previously taught on Cambridge Judge Business School Executive Education programmes. “There is a significant housing deficit and some entrepreneurs are cashing in on the situation by building housing estates in relatively affluent areas with privately sourced funds and offering individual units for sale,” he says. “These entrepreneurs make a handsome profit from the housing deficit.”

The biggest property venture currently underway is Eko Atlantic, an artificial island being reclaimed just off the coast of Lagos. The island is being created to provide a business centre that is intended to become a financial hub for the whole of West Africa. Privately built and administered, and with excellent infrastructure, it also hopes to house around 250,000 people. Eko Atlantic is being built with both private investment and the support of the Lagos State government.

However, just as the denizens of cities such as London and New York are discovering, in Lagos a property boom doesn’t necessarily equate to better living standards for the majority. While Lagosians on more modest incomes may be able to get a mortgage, rates are very high, and usually only last for five to seven years. And though the government sometimes embarks on social housing for middle class citizens, the poor slum-dwelling majority have no way to afford a decent home at all.

Another issue that besets people across Nigeria is coping with the country’s infrastructure, and this is particularly true in Lagos. For instance, the patchy provision of power, specifically electricity, is a particular problem. To minimise the effects of power cuts, those who can afford it rely on generators, which causes environmental and noise pollution, as well as being a significant cost for both businesses and households.

The state of the city’s roads and its transport system also hinders the day-to-day operation of businesses and the people who work in them. Lagosians are compelled to drive everywhere, not least because of a public transport system that the Lagos Metropolitan Transport Authority (LAMATA) itself calls “grossly inadequate”. Commuting times are long, with regular traffic gridlock; the roads themselves are in a generally bad condition, leading to frequent accidents that, in turn, add to driving times.

While LAMATA’s 30-year masterplan – which includes better roads, buses, a rail network, ferries, cable cars, walking and cycling routes – is ongoing, Onagoruwa believes the process should be speeded up. “Lagos has abundant manpower but they need training. Maintenance is also a big problem. If there is transport infrastructure but no training in maintenance, then the project will fail,” he says.

Corruption – in formal and informal, public and private sectors – is a well-known hazard for those trying to do business. “Corruption is a manifestation of poor governance,” says Munir, and this is being addressed by a range of initiatives. The Clean Business Practice Initiative, for instance, dedicated to battling corporate corruption in Nigeria, was set up in 2013 and is a private sector-driven anti-corruption initiative designed to complement government efforts in fighting corruption.

So what should the state be doing to help business challenges? According to Felipe Hernandez, Chair of Cities South of Cancer and Fellow Architect of King’s College, “The government should regain its position as regulator, but should not extricate itself from investing in development. It should guarantee the provisions of basic services and utilities while, at the same time, ensuring that citizens have equal opportunities to participate in the developing of the economy.”

But regardless of the pervasive inequality and what the government is or isn’t doing, the excitement of Lagos, its warmth, vibrancy and energy, its opportunities and the enticing possibility of huge wealth, means that entrepreneurs will continue to be attracted to the city.

There are great opportunities here,” says Okonedo. “The entrepreneurialism is apparent and will continue to create opportunities and employment.

Find out more

In 2014 Cambridge Judge Business School Executive Education delivered a Transformational Leadership & Organisational Change programme for more than 130 participants from the Lagos State Parliament. Learn more about Executive Education in Africa